Telangana, Andhra Pradesh hold hope for southern cement sector

The south cement sector, with a capacity of around 136 million tonnes that accounts for a third of the country's total capacity of 422 million tonnes, is currently operating at around 55% owing to a sharp slowdown in the marketRaji Reddy Kesireddy | ET Bureau | November 10, 2015, 12:00 IST

HYDERABAD: After more than five years of muted growth, the capacity-surplus south Indian cement industry can soon hope for considerable demand revival thanks to improving construction activities in the two Telugu-speaking states of Andhra Pradesh and Telangana, view analysts. The proposed greenfield capital city construction at Amaravati and the mega Polavaram irrigation project in AP and revival in irrigation projects, new road projects and housing for deprived sections in Telangana could translate into demand pickup for cement by at least 10-20%, they anticipate.

The south cement sector, with a capacity of around 136 million tonnes that accounts for a third of the country's total capacity of 422 million tonnes, is currently operating at around 55% owing to a sharp slowdown in the market.

Added to the slowdown, the region also saw a steep surge in capacity additions ­ nearly half of India's new capacities of around 100 million tonnes during 200914 ­ due to abundance of limestone availability in the southern market.

Though the capacity utilisations plummeted sharply with demand stooping over the past 5-6 years, most of the south Indian cement companies man aged to maintain healthy financials thanks to continued price discipline.

Telangana, which is looking at converting at least 400km of BT roads into cement roads in Hyderabad and expand them to other parts of the state, is currently negotiating with the cement manufacturers for bulk supplies at relatively discounted prices. B Janardhan Reddy, commissioner of Greater Hyderabad Municipal Corporation, said the corporation would soon float tenders for cement roads.

“While we will initially spend municipal funds on these initiatives, we may look at roping in private firms through public-private-partnership (PPP) model for laying cement roads.“ Viewing that cement roads could sig nificantly boost the demand for cement in the region, M Ravinder Reddy, mar keting director with Vicat Group that sells cement under Bharati brand, said the manufacturers were also in talks with AP government.

“Opportunity to supply large quanti ties of cement at relatively discounted prices will be a win-win for both the government and the cement firms This alone could help the demand for cement going up by at least 10%.“

“If AP government also adopts ce ment roads for its proposed Greenfield capital city at Amaravati, we can see further spurt in demand revival, at tracting the attention of other states ,“ says NA Viswanathan, secretary gener al of the lobby body Cement Manufac turers' Association (CMA). Forecast ing better prospects for the cement firms in the south, analysts of ICICI Se curities in its recent report said de mand may revive from the second half of the current fiscal year and the capac ity utilisations in the region could over a period improve to 65% from 55%.

“While the Telangana government is likely to spend more on low-cost hous ing, the Seemandhra government is likely to spend more on roads, irrigation and construction of the new capital Am aravati and related infrastructure from Q3FY16,“ said analysts Krupal Maniar Jayant Dongre and Kushal Churi.

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